Question

HW7 Q5 Homework • Unanswered Accountants tell a franchise owner that she earned $50,000 in profits last year. The owner knows that most of her business acquaintances earned at least $70,000 in profits in comparable franchises. Which of the following is true? Her firm earned an economic O A Profit of $50,000 o B Profit of $20,000 O c Loss of $20,000 0 D Loss of $70,000
Answer only, No explanation needed

Answer 1

Q1
Answer
Option C
Loss of $20000
Economic profit =accounting profit -implicit costs
implicit cost is the best alternative investment opportunity or activity
here the profit in the other places is $70000
so the opportunity cost of the franchise is $70000
Economic profit =50000-70000
=-$20000=loss of $20000
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Q2
Answer
$5
the marginal revenue is the same over the market as the price is constant.